BiggerPockets

#1) is the $91,250 too low? Should I bump it up? and what's the best way to do that since the option has already been signed?

Your asking price is too high. Your initial offer should be 50% of FMV minus repairs. So in your case $57,500.

#2) Wells Fargo told me they require a copy of the 'listing agreement' and the MLS description.. the house is not on the market right now. Do I have to list it in order to do a short sale? I'm the one that wants to buy it.

Just tell them it is for sale by owner and that should suffice.

#3) They are asking for a 'decline of value letter'. Do you think if I show them recent comps that will suffice?

I've never heard of a decline in value letter. Not sure what it is, but I would not send them comps until you are in negotations.

#4) They asked for a 'financial worksheet'. Any suggestions on format for that??

You will need to have the homeowner fill out a income/expense report. It is supposed to show that they can no longer afford the property.

What did you include in your hardship package to the bank?

Stephen-

You are not the bank, you are an investor. If you are worried about what the bank thinks, then you are not in the right mindset. You always, always, always want the bank to counter your first offer.

1. Banks typically counter most offers. If they reject an offer, which is rare, just submit a higher offer.

2. A foreclosure is very expensive for a bank. They are motivated to sell before foreclosure than having to pay legal fees, agent fees, cleanup fees, etc. Plus, the bank cannot loan money against a bad loan. They want to clear the loan so they can loan on other properties.

3. You said the property needs repair, the bank does not know the extent of the repairs. So they have no idea if your offer is lowball or not.

I assume by FMV you mean the value if it was cleaned up and fixed up. With $20K in work, its worth no more than $135K right now. It certainly won't be worth that after its had the owner in it another three or four months while doing the foreclosure, then another two months empty before the bank even gets it on the market, then who knows how long before the get a buyer, then another month or two to close. Plus the bank with spend ten grand or more just to do the foreclosure.

I think Justin's offer might be a bit low, but I don't know the area. I agree on the point above offers, though. What's the worst possible response to a first offer? "We accept".

Each mortgage company has a model, that when ran will determine if it is better to take the offer or foreclose. It is call net savings over REO.

This formula relies on a input and that number is acheived through the BPO or appraisal.

Lots of lenders and investors are now holding properties and renting them out until the market recovers to the existent they will not lose their shirt.

This is completely false in that "lots" is in accurate. Currently lenders are holding properties and securing them for investors. A few of them are trying to lease them out, but this is nothing more than an experiment. Investors do not want dollars chasing pennies.

It is much more likely REO's will be sold to large capital investment companies for liquidation or a Bad bank will be created. China is already in place with Capital which I believe will set us up for a bad bank sceanrio.

#1) is the $91,250 too low? Should I bump it up? and what's the best way to do that since the option has already been signed?

Time will tell.... What is your strategy? Since your using an option contract, I assume you are flipping. So you if your wholesaling the property, then you will need to sell at least at 80% of market value after repairs. If your retailing the property then you need to sell at 5% below market value less repairs.

Retail Scenario using flash funding:

$155K - $20K (repairs) x 95% discount= $128K fair market value.

$128K List Price
less: commissions @ 6% $7.7K
less: closing costs A to B = $1.5K
less: closing costs B to C = $1.5K
less: Flash Funding = $3K
less 3% seller concessions = $3K
__________________________________
Total expenses = $17K rounded up.

128K - $17K - $91K (contract price) = $20K potential profit

The reason I do not pick a general number like 50% of FMV less repairs is because I do not want the negotiator to push my file aside or taint its credibility. I want to be able to justify my offers with documentation.

I worked for a behemouth bank and I know the corporate culture very well. I feel I am better served if I can find equilibrium between netting as much as possible for the bank and lining my pockets.

Also, I present my purchase price along with actual market data side by side with what the lender will net should they choose to foreclose so my initial offer will vary depending on location, property type, size etc.

I know Justin does well with his method and I would not criticize it especially since he has been successful. I read somewhere that if your not embarrassed to submit your offer, then it is too high.

Based on your numbers, $91k is where you will want to end-up not start.

#2) Wells Fargo told me they require a copy of the 'listing agreement' and the MLS description.. the house is not on the market right now. Do I have to list it in order to do a short sale? I'm the one that wants to buy it.

Justin answered this very well. When you talk to the negotiator just remind them this is a FSBO and you can have the owner list the property but then the lender will have to pay commissions. That line usually works.

#3) They are asking for a 'decline of value letter'. Do you think if I show them recent comps that will suffice?

This is a new one on me, but I would have the seller (in the hardship letter) state that the area property values have fallen hence the reason for him pursuing a Short sale.

#4) They asked for a 'financial worksheet'. Any suggestions on format for that??

Justin got this one to. Have them fill out a montly budget showing their expenses. They should be in the red.

this is what I don't understand about short sales. If was the bank I would throw that offer in the trash and not even try to negotiate. A bank could go through the expense of the entire foreclosure process and sell the house in a few days for more than $57,500. So why would they even entertain such a lowball offer?

Negotiations start when the BPO is ordered. You need to focus your energies on making sure the RE agent that shows up to conduct the BPO considers all the facts.

--> First you negotiate a fair value for the property with the BPO agent.
--> Second you negotiate the counter offer with lender.

You should be countering at least twice or three times and may have to offer four or five times.

Good Luck